Requiring utilities to generate more electricity from expensive sources would increase operating costs for electric co-ops

Green-Energy Activists Declare War on Rural Coloradans

Some lawmakers in Colorado want to increase the cost of electricity for all Coloradans, especially those in rural areas. Awaiting Gov. John Hickenlooper’s signature, SB 252 would require rural electric cooperatives to dramatically increase the amount of electricity generated from renewable sources to 25 percent by 2020, up from the current mandate of 10 percent. This portends unambiguously higher electricity rates for Coloradans.

Electric co-ops in Colorado serve about 25 percent of the population in predominantly rural areas that span 70 percent of the state’s land. By mandating the purchase of more renewables, SB 252 would force co-ops to increase electricity generation costs. Tri-State G&T estimates SB 252 would cost its 18 member co-ops as much as $4 billion by 2020. In addition, one study found the current RPS will raise electricity rates by as much as 64 percent and destroy up to 29,000 jobs by 2015.[1] Further increasing the RPS will only exacerbate these negative economic impacts.

SB 252 would drive up electricity rates in two ways. First, as noted above, it would require electric co-ops to generate more electricity from renewable sources. Second, it would allow electricity rates to increase faster to pay for the high cost of renewable electricity. The current RPS allows electric co-ops to raise rates by 1 percent each year. SB 252 would boost allowable annual rate increases to 2 percent. Requiring utilities to generate more electricity from expensive sources would increase operating costs for electric co-ops. Boosting annual rate increases would allow co-ops to pass those increased operating costs to consumers.

For a preview of how a more stringent RPS would hurt Coloradans, consider the effects of the current RPS. Although slightly below the national average, Colorado has higher electricity rates than most of its neighboring states: Colorado jumped from middle of the pack to second highest residential electricity prices in the Mountain West since the RPS was implemented.[2] Additionally, Colorado Public Utilities Commission data show that the RPS was directly responsible for a 13 percent increase in Colorado’s electricity rates in 2012.[3] If passed, SB 252 would undoubtedly make electricity more expensive for Coloradans; the only question is the extent of the damage.

In response, Coloradans are rising up against SB 252. In a scathing editorial, The Pueblo Chieftain called SB 252 a “rural dagger.” The newspaper’s animosity is understandable: the city of Pueblo, Colorado receives power from the San Isabel Electric Association, a rural electric co-op. Even The Denver Post editorial board, which generally supports renewable energy mandates, urged caution: “Given the financial uncertainty and the potential economic impact on rural residents and businesses, we think supporters of the bill should consider lowering the proposed standard or extending the time frame.”

Given the onerous costs of increasing the RPS, it is no surprise that Colorado Rural Electric Association President Kent Singer implored ratepayers to oppose SB 252 in a recent op-ed:

“The co-ops are on track to supply at least 10 percent of our power from renewable energy sources by 2020, and are considering additional purchases of these resources when they make economic sense…Colorado’s electric co-ops support renewable energy and energy efficiency, but we oppose inflexible legislative mandates that do not take into account the unique characteristics of each electric co-op system.”

In 2004, Colorado became the first state to enact a Renewable Portfolio Standard (RPS) by ballot initiative.[4] The original RPS required large utilities serving 40,000 or more customers to generate 10 percent of electricity from renewable sources. Passed in 2007, HB 1281 extended the RPS to co-ops. In 2010, the Colorado legislature increased the RPS for investor-owned utilities to 30 percent by 2020.

Until recently, Colorado was on track to meet its RPS mandates. Colorado generated about 5.7 percent of its electricity from qualified renewable resources in 2009, exceeding the 5 percent mandate.[5] However, the state fell short of meeting its 2011 mandate of 12 percent even though utilities generated 10.4 percent from renewable sources.[6] That utilities boosted renewable generation by more than 80 percent in two years but still fell short of the RPS underscores the folly of inflexible renewable electricity mandates.

SB 252 will certainly drive up the cost of electricity in Colorado. If the Colorado legislature further increases costs for electric co-ops, rural families will suffer. Coloradans and all Americans deserve electricity derived from the most economical sources, not the most politically favored.

[2] According to EIA data, Colorado residential electricity prices were 9.03 cents/KWh in 2009 and 11.28 cents/KWh in 2013. In 2009, Colorado ranked fourth out of eight Mountain West states. In 2013, Colorado ranked second. Mountain West states include, in descending order of 2013 electricity prices: Nevada, Colorado, New Mexico, Arizona, Montana, Utah, Wyoming, and Idaho.

[3] See Testimony of William J. Dalton, Staff of the Colorado Public Utilities Commission, Sept. 21, 2011, p. 20. Dalton estimated the cost of renewable acquisitions was about $343 million for 2012. Total electricity sales in Colorado were estimated to be $2.65 billion.

[6] The Energy Information Administration (EIA) estimates that Colorado currently generates 14 percent of its electricity from renewable sources. EIA includes all hydroelectric generation, even though the RPS excludes hydroelectric in existence before January 2005. However, SB 252 would extend eligibility to several new sources. Click here.

The Institute for Energy Research (IER) is a not-for-profit organization that conducts intensive research and analysis on the functions, operations, and government regulation of global energy markets. IER maintains that freely-functioning energy markets provide the most efficient and effective solutions to today’s global energy and environmental challenges and, as such, are critical to the well-being of individuals and society.

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